Please note: This advisory should not be construed as a rating reaffirmation.
Rating Advisory
October 16, 2021 | Mumbai
Adarsh BirmechaO riginal Template12 3Vaigai Leather Corporation
Advisory as on October 16, 2021
This rating advisory is provided in relation to the rating of Vaigai Leather Corporation The key rating sensitivity factors for the rating include:
Upward factor
Sustained improvement in revenues and margins leading to cash accruals of over Rs.1 crore
Improvement in working capital cycle, with improvement in receivables and inventory management
Downward factor
Decline in scale of operations leading to fall in revenue by more than 25 percent or decline in profitability leading to lower cash accrual
Further stretch in working capital management weakens the financial risk profile especially the liquidity
CRISIL Ratings has a policy of keeping its accepted ratings under constant and ongoing monitoring and review. Accordingly, it seeks regular updates from companies on business and financial performance. CRISIL Ratings is yet to receive adequate information from Vaigai Leather Corporation (VLC) to enable it to undertake a rating review. CRISIL Ratings is taking all possible efforts to get the rated entity to cooperate with its rating process for enabling it to carry out the rating review.
CRISIL Ratings views information availability risk as a key factor in its assessment of credit risk.
(Please refer to CRISIL Ratings’ criteria available at the following link, https://www.crisil.com/content/dam/crisil/criteria_methodology/basics-of-ratings/assessing-
information-adequacy-risk.pdf)
If VLC continues to delay the provisioning of information required by CRISIL Ratings to undertake a rating review then, in accordance with circulars SEBI/HO/MIRSD/MIRSD4/CIR/P/2016/119 dt Nov 1, 2016, SEBI/HO/MIRSD/ MIRSD4/ CIR/ P/ 2017/ 71 dt June 30, 2017 and SEBI/HO/MIRSD/CRADT/CIR/P/2020/2 dt January 3, 2020 issued by Securities and Exchange Board of India, CRISIL Ratings will carry out the review based on best available information and issue a press release.
About the Firm
Set up in 1986 by Mr Mani and Mr. P Selvam, VLC is engaged in manufacture of finished leather. The
firm derives majority of its revenues from the export market.
Please note: This advisory should not be construed as a rating reaffirmation.
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Please note: This advisory should not be construed as a rating reaffirmation.
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Rating Rationale
August 17, 2020 | Mumbai
Vaigai Leather Corporation
Rating migrated to 'CRISIL B+/Stable' Rating Action
Total Bank Loan Facilities Rated Rs.6 Crore
Long Term Rating CRISIL B+/Stable (Migrated from 'CRISIL B+/Stable ISSUER NOT COOPERATING'*)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
*Issuer did not cooperate; based on best-available information Detailed Rationale
Due to inadequate information, CRISIL, in line with SEBI guidelines, had migrated the rating of Vaigai Leather Corporation (VLC) to 'CRISIL B+/Stable Issuer Not Cooperating' on July 29, 2020. However, the management has subsequently started sharing requisite information, necessary for carrying out comprehensive review of the rating.
Consequently, CRISIL is migrating the rating on bank facilities of VLC from 'CRISIL B+/Stable Issuer Not Cooperating' to 'CRISIL B+/Stable'.
The rating reflects VLC's small scale of operations in a fragmented industry and working capital-intensive operations.
These rating weaknesses are partially offset by the extensive experience of the partners in the leather industry and moderate financial risk profile.
Key Rating Drivers & Detailed Description Weakness:
* Small scale of operations in a fragmented industry: The firm has small scale of operations, reflected in its estimated revenue of Rs 7.50 crore for fiscal 2020. Also the industry in which it operates is highly fragmented marked the presence of organised and unorganised players. This will continue to constrain the scalability of the firm.
* Working capital-intensive operations: VLC has high working capital requirement reflected in gross current assets of 245 days estimated as on March 31, 2020, driven by high inventory and stretched credit period offered to its customers.
Strengths:
* Extensive experience of the partners in the leather industry : The partners have been in this industry from over 20 years, helping them establish strong relationships with suppliers and customers.
* Moderate financial risk profile: The firm has moderate financial risk profile marked by low gearing and moderate debt protection metrics. The gearing has been about 1 time estimated as on March 31, 2020. The debt protections metrics is also moderate with net cash accrual to total debt (NCATD) and interest cover of 0.03 times and 1.82 times respectively for fiscal 2020. However networth is modest estimated at Rs.3.06 crore as on March 31, 2020.
Liquidity Stretched
Liquidity is stretched marked by modest accruals. The firm is likely to generate accruals of Rs.0.08 crore for fiscal 2021 against which it has no repayment obligations. In fiscal 2022 the firm will generate accruals of over Rs.0.2 crore against which it has a repayment obligation of Rs.0.15 crore. The company has access to fund based limit of Rs.4.50 crores which is highly utilized at over 90% for the past 12 months ended July 2020.
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Outlook: Stable
CRISIL believes that VLC should continue to benefit from the experience of its partners in the leather industry.
Rating Sensitivity Factor Upward factor
* Sustained improvement in revenues and margins leading to cash accruals of over Rs.1 crore
* Improvement in working capital cycle, with improvement in receivables and inventory management Downward factor
* Decline in scale of operations leading to fall in revenue by more than 25 percent or decline in profitability leading to lower cash accrual
* Further stretch in working capital management weakens the financial risk profile especially the liquidity.
About the Firm
Set up in 1986 by Mr Mani and Mr. P Selvam, VLC is engaged in manufacture of finished leather. The firm derives majority of its revenues from the export market.
Key Financial Indicators
As on/for the period ended March 31 Unit 2019 2018
Operating income Rs.Crore 9.77 8.88
Reported profit after tax Rs.Crore 0.20 0.18
PAT margins % 2.08 2.06
Adjusted Debt/Adjusted Networth Times 0.91 1.15
Interest coverage Times 1.35 1.97
Any other information: Not applicable
Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments and are included (where applicable) in the Annexure -- Details of Instrument in this Rating
Rationale. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels.
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Annexure - Details of Instrument(s) ISIN Name of
Instrument Date of
Allotment Coupon
Rate (%) Maturity Date
Issue (Rs.Cr) Size
Complexity
Level Rating Assigned with Outlook
NA
Export Packing
Credit
NA NA NA 3 NA CRISIL B+/Stable
NA
Proposed Long Term Bank Loan
Facility
NA NA NA 3 NA CRISIL B+/Stable
Annexure - Rating History for last 3 Years
Current 2020 (History) 2019 2018 2017 Start of
2017 Instrument Type OutstandingAmount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities LT/S
T 6.00
CRISIL B+/Stabl
e
29-07-20
CRISIL B+/Stabl e (Issuer Not Cooperat
ing)*
30-04-19
CRISIL B+/Stabl
e
27-10-17
CRISIL B+/Stabl
e
Suspend ed/
Suspend ed
30-01-19
CRISIL B+/Stabl e (Issuer Not Cooperat
ing)*
All amounts are in Rs.Cr.
*Issuer did not cooperate; based on best-available information
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount
(Rs.Crore) Rating Facility Amount
(Rs.Crore) Rating
Export Packing Credit 3 CRISIL
B+/Stable Export Packing Credit 6
CRISIL B+/Stable/Issuer
Cooperating Not Proposed Long Term
Bank Loan Facility 3 CRISIL
B+/Stable -- 0 --
Total 6 -- Total 6 --
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition Rating criteria for manufaturing and service sector companies CRISILs Criteria for rating short term debt
The Rating Process
Understanding CRISILs Ratings and Rating Scales
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This disclaimer forms part of and applies to each credit rating report and/or credit rating rationale that we provide (each a “Report”). For the avoidance of doubt, the term
“Report” includes the information, ratings and other content forming part of the Report. The Report is intended for the jurisdiction of India only. This Report does not constitute an offer of services. Without limiting the generality of the foregoing, nothing in the Report is to be construed as CRISIL providing or intending to provide any services in jurisdictions where CRISIL does not have the necessary licenses and/or registration to carry out its business activities referred to above. Access or use of this Report does not create a client relationship between CRISIL and the user.
We are not aware that any user intends to rely on the Report or of the manner in which a user intends to use the Report. In preparing our Report we have not taken into consideration the objectives or particular needs of any particular user. It is made abundantly clear that the Report is not intended to and does not constitute an investment advice. The Report is not an offer to sell or an offer to purchase or subscribe for any investment in any securities, instruments, facilities or solicitation of any kind or otherwise enter into any deal or transaction with the entity to which the Report pertains. The Report should not be the sole or primary basis for any investment decision within the meaning of any law or regulation (including the laws and regulations applicable in the US).
Ratings from CRISIL Rating are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold, or sell any securities / instruments or to make any investment decisions. Any opinions expressed here are in good faith, are subject to change without notice, and are only current as of the stated date of their issue. CRISIL assumes no obligation to update its opinions following publication in any form or format although CRISIL may disseminate its opinions and analysis. CRISIL rating contained in the Report is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment or other business decisions. The recipients of the Report should rely on their own judgment and take their own professional advice before acting on the Report in any way.CRISIL or its associates may have other commercial transactions with the company/entity.
Neither CRISIL nor its affiliates, third party providers, as well as their directors, officers, shareholders, employees or agents (collectively, “CRISIL Parties”) guarantee the accuracy, completeness or adequacy of the Report, and no CRISIL Party shall have any liability for any errors, omissions, or interruptions therein, regardless of the cause, or for the results obtained from the use of any part of the Report. EACH CRISIL PARTY DISCLAIMS ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. In no event shall any CRISIL Party be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of any part of the Report even if advised of the possibility of such damages.
CRISIL Ratings may receive compensation for its ratings and certain credit-related analyses, normally from issuers or underwriters of the instruments, facilities, securities
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or from obligors. CRISIL’s public ratings and analysis as are required to be disclosed under the regulations of the Securities and Exchange Board of India (and other applicable regulations, if any) are made available on its web sites, www.crisil.com (free of charge). Reports with more detail and additional information may be available for subscription at a fee – more details about CRISIL ratings are available here: www.crisilratings.com.
CRISIL and its affiliates do not act as a fiduciary. While CRISIL has obtained information from sources it believes to be reliable, CRISIL does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives and / or relies in its Reports. CRISIL keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of the respective activity. As a result, certain business units of CRISIL may have information that is not available to other CRISIL business units. CRISIL has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process. CRISIL has in place a ratings code of conduct and policies for analytical firewalls and for managing conflict of interest. For details please refer to: https://www.crisil.com/en/home/our-businesses/ratings/regulatory-disclosures/highlighted-policies.html
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